What is investment? is one question that anyone considering putting aside some money for future growth needs to get concrete answer to. I have not only answered the question is this article but have also provided some basic guide to safeguarding your investment. Investment is one term that has been greatly misunderstood and misinterpreted by many. People now give all sorts of advice in the name of investment advice.
I cringed the other day when I heard someone telling his friend to patronize money doublers and wonder banks that are now resurfacing everyday. This is officially known as Ponzi scheme and will never be a substitute for quality investment.
What is Investment?
Investing in simple term is the action taken by individuals or corporate bodies with the aim of adding value to an already controlled asset or resources. Notice the use of the word controlled. This implies that you must not be the owner of whatever resource you invest as your investment. People invest for various reasons but, the most common reasons why people make investment are for capital appreciation and safety of initial capital. It can also be an investment in oneself for the hope of increasing earning potentials.
FORMS OF INVESTMENTS
Shares investment: shares are stocks of company held by the general public. It represents owners’ interest in a business entity. There are two broad types of shares; common shares and preferential shares. Those that own shares in companies are called the shareholders. Investment in shares is one of the surest ways of hedging your resource against inflation and economic downturn. The reason is that investors would believe that management of companies’ factors in the general price level change into their business activities thereby retaining their purchasing power and this will in turn translate into corresponding increase in share prices.
Real estate investments: real estate is the phrase used to mean a dwelling place – houses, offices, accommodation or websites. People need building for varying purposes, but not all can build their own houses. This now creates an opportunity for investors to provide housing to those that cannot afford to build theirs. The process of providing housing to all those that cannot afford to build their own is known as real estate investing or business. If done well, real estate business is one of the most profitable investments one can make.
Insurance investments: very many people don’t know that insurance is a form of investment. There is this thinking that insurance is only necessary for emergency sake and all that. If you are among those in this line of thinking, I will shock you today by telling you that insurance is a form of investment that promises sure and reliable return while at the same time taking care of contingencies and unforeseen circumstances. Life insurance policy for instance yields interest that will all be given back to the policy holder if he or she outlived the insurance policy.
Business: business is the act of looking for what people need and taking steps to meet those needs in a profitable way and manner. Business is no doubt the best form of investment that anyone can make. The only problem is that people lack the needed skills to make their businesses work for them. Business failures made people consider business as the riskiest form of investment. This is not true; business is a safe form of investment. All that you need to do is master the art of investing. There are lots of resources that one can use to hone his or her business skill.
Derivatives (options, swaps, etc): derivatives are not primarily a form of investment but, a necessary tool needed in any investment strategic plan. Derivatives acts as hedge to our investments and would therefore qualified to be called investments.
Bonds: bonds are forms of investments in the form of security. Governments are the principal issuer of bonds. Corporate bodies also issue bond but is popularly known as debenture. People (corporations and high net worth individuals) invest in this kind of security for risk free returns. Risk free return is rewards that accrue to investor with reasonable certainty as regards returns.
Cryptos: going by our working answer to the question of what is investment, one can argue that cryptocurrencies meets the definition of an investment. Yes, putting your money into crypto with the hope of safeguarding your asset and expecting some future appreciation makes it a form of investment.
CAVEATS OF INVESTMENTS
Beware of the activities of investment scammers: due to the fact that investment is important to our life and wellbeing, scammers have made it a point of duty to reap the general public off their hard earned money all in the name of investment. The golden rule is “if it is too good to be true, it probably is” fleeing as much as you can from any form of scheme that promises abnormal returns is the key to making secured investments. Investments should grow organically.
Carryout proper investment appraisal: investment appraisal is the act of x-raying business opportunity to establish its economic viable-ness before venturing into. You need to employ the service of professionals if you are not good in doing this.
Be sure of exist point before making investment: it is a good practice to see the exit point of an investment opportunity before committing your scarce resources to it. Any time you don’t see an exit root in any business opportunity, the most reasonable and wise thing to do is walk away from such opportunity.
Peoples mind needs to be cleared on what investments really are. One of the primary causes of the economic meltdown is the existence of toxic assets. Toxic assets are resources created to have value but did not have any value after all. A good example is the SPE (special purpose entity). Any resource controlled by you that does not have the prospect of adding value is not an asset.
Your living home for instance is not an investment, as obvious as this is, a lot of people still consider their living home as investments. Yet, you see people that are struggling financially still buying big houses. This I know is one of the reasons why people struggle to make it financially. Your home does not bring in any cash flow except it is sold and until that happens; it still remains a liability and not an asset.
Now that you understand what investment is, all that you need to do is go out there and make exploit. But before running away, have a look at these other articles: fundamental analysis, business analysis and business valuation methods.
To the success of your investment!